Five Things Congress Could Do for Music Creators That Wouldn’t Cost the Taxpayer a Dime Part 2: Update the Compulsory License for Songwriters

House Judiciary Committee Chairman Bob Goodlatte (R-VA) is holding hearings on a potential revision to the Copyright Act. One area he might want to take a fresh look at is whether we still need a compulsory license to protect the public from the antitrust ambitions…of songwriters.

A “compulsory license” is a government-mandated requirement that someone license property on terms set by the government. Very often, the government also mandates the price that the property owner may charge for the rights she is forced to license. Americans enjoy protection under the “takings clause” of the 5th Amendment of the Constitution, so these compulsory licenses are fairly rare. The Constitution also requires that “takings” require “just compensation” to the property owner.

Did you know that the Congress established a compulsory license for songs? Yes, they did in 1909. This compulsory license is often called the “mechanical” license because it covers the “mechanical reproduction” of the song, a somewhat arcane concept better understood as a copy. The contemporary version of the 1909 license covers permanent downloads and certain categories of on-demand streaming as well as compact discs and vinyl.

The government royalty rate for songs is a “minimum” rate–of course, no one should be surprised to know that if the only rate anyone is required to pay is the minimum and the songwriter cannot decline the license, the minimum may as well be a maximum. And that is what has happened.

Does this sound like the kind of government action that is required to protect the public from songwriters in the time of the Internet?

For over a century, songwriters have been forced to give up control over who records their songs. They also have to accept the royalty rate that the Congress determines to be “just compensation” in a market already distorted by the compulsory license. (The Congress determined 2¢ a copy was “just compensation” from 1909 to 1977–the rate then was indexed to inflation and the minimum rate is currently 9.1¢.)

One might ask why do we need a compulsory license for songs? At a time when the dominant big tech companies drive around the world snorting up private data and taking pictures of your house, have scant attention paid to them when they gobble up companies to increase their market dominance or even monopoly, and employ an unprecedented number of lobbyists to influence governments around the world, why are we still worried about compulsory licenses for songs? To protect the public from the anticompetitive ambitions of songwriters?

[T]oday all…countries, except for the United States and Australia, have eliminated such compulsory licenses from their copyright laws. A fundamental principle of copyright is that the author should have the exclusive right to exploit the market for his work, except where this would conflict with the public interest. A compulsory license limits an author’s bargaining power. It deprives the author of determining with whom and on what terms he wishes to do business. In fact, the Register of Copyrights’ 1961 Report on the General Revision of the U.S. Copyright Law favored elimination of this compulsory license.I believe that the time has come to again consider whether there is really a need for such a compulsory license. Since most of the world functions without such a license, why should one be needed in the United States?

Let Us Know How That Turns Out

The compulsory license essentially destroys the market for mechanical licenses–one reason that preserving a strong market for other forms of song licenses has become so important to songwriters. Yet the Congress still mandates that songwriters must license their songs and tells songwriters the price they can charge–but they do not allow the songwriter to determine whether the government mandated rate has been paid correctly under the government mandated license.

You probably assumed that once the government intervened in the market to mandate a license and a royalty rate, that they would feel obligated to make sure that their government royalty was actually paid to the songwriters whose bargaining rights were cut off.

But the government doesn’t do that. If songwriters don’t get paid, it is up to the songwriter to terminate their statutory license and bring a copyright infringement claim for statutory damages against someone they did not want to record their songs, who didn’t pay the bill, and who probably will either be difficult to find or is a Big Tech company that is oblivious to the claim of any one songwriter because the company can crush them like a gnat in litigation.

In this situation, the government tells songwriters, “let us know how that turns out.”

What Is Good About Uniform License Terms
The potential fix is actually relatively easy. Just as we have uniform laws like the Uniform Partnership Act, there is a value to having certain terms of a mechanical license set in the Copyright Act. The standard negotiated mechanical license is a private contract that typically starts with something like “this license incorporates by reference the mechanical license in the Copyright Act except as set forth herein”. The problem is not that there is a uniform set of terms that copyright licensees and licensors can reference.

The problem is the compulsory part.

The easy fix would be to allow songwriters either to opt in to the existing statutory license terms or to opt out of it. The better route might be to phase in an “opt out” so the market could develop more gradually, and implement the “opt in” a few years down the road.

Either way, the change would probably best be implemented prospectively–there are a host of statutory licenses in use, either stand alone or private agreements granted by artist-songwriters in record deals that rely on the statutory license. Simply eliminating these existing licenses entirely would likely be extraordinarily disruptive.

Maintaining an optional “uniform mechanical license” seems to make good commercial sense.

Communicating the Opt In Decision

As we are often told, the Internet has brought unprecedented democratization to creators. A songwriter could communicate her decision to opt in or opt out of the statutory license in a host of ways, from Twitter to blogs. But as a more formal matter, the good news is that there is already an existing methodology for communicating legal notices regarding the disposition of copyrights.

The U.S. Copyright Office has a document repository that has been in place for decades (See “Recordation of Transfers and Other Documents” described in Copyright Office Circular 12). For a modest fee (starting at $105) anyone can register a document and “to encourage document recordation, the law confers certain legal advantages, including priority between conflicting transfers and “constructive notice”…if certain requirements are met.”

So an opt in notice could easily be recorded in the Copyright Office and take advantage of the existing jurisprudence around document recording. Those who find the fees burdensome should be authorized to give notice on their websites, Facebook pages, or other ways to leverage the democratic benefits of the ever popular social media.

Abandoning the government mandated compulsory license would free songwriters to participate in the market for reproductions of their songs, and would be a great step forward. However, this still doesn’t deal with the problem of getting paid on existing compulsory licenses where the government has largely abandoned the songwriter after forcing her to get into the situation in the first place. I’ll address a couple ideas for fixes in Part 3.